Recreational/personal watercraft market

Rough Notes, Feb 2003 by France, Larry G

SPECIALTY LINES MARKETS

Smooth sailing or choppy waters?

Any time you deal with a product that depends a great deal on the economy, it certainly will have peaks and valleys. Recreational "toys" fall into that category. Pleasure boats and personal watercraft are not on most people's buy list when the future economy is not very predictable.

Let's also add to that mix the fact that some states do not allow personal watercraft (PWC) units on public waterways due to pollution/chemical issues and, of course, noise. To invest $5,000 and up for a luxury item that may need to be transported some distance, and whose operational costs rise along with rising gasoline prices, may make this type of purchase out of the question.

The market for watercraft has been decreasing overall due to fewer carriers, declining capacity and losses. Some carriers are now charging for coverage that was waived during the prior soft market. The year 2003 doesn't appear to be bringing relief in pricing.

According to Doug Semler, senior vice president of Old United/Vantage Casualty Insurance Company, the increase in insurance fraud regarding the boating industry is a major factor for underwriters to accurately and properly price and evaluate risks.

As Semler stated in the "Western Boaters Safety Group" newsletter: "A recent insurance Research Council and Insurance Office survey taken among 343 insurance carriers showed that 40% of the insurance carriers are spending more on the battle against insurance fraud over the last three years than in prior years."

Semler said that the respondents indicated that "soft fraud" (the exaggeration of otherwise legitimate claims) is far more frequent than "hard fraud" (the deliberate attempt to stage losses often committed by organized crime). "The mere prevalence of `soft fraud' adds more to the overall claims cost than `hard fraud.'"

Semler stated: "Watercraft theft is on the rise nationwide as well. Boat thefts cost the boating community between $85 million and $125 million each year, according to the Wisconsin Department of Natural Resources (DNR). Approximately 27,000 boats are reported stolen each year and of those, 90% are less than 20 feet in length."

Semler says that one of the major factors regarding fraud and theft claims is that there is no uniformity in watercraft registration documentation. Currently, 19 states have no requirements that a title must be presented in order to register a watercraft; 13 states require no proof of ownership; and 10 states require neither a title nor a proof of ownership. Semler says that states need to mandate boat licensing and registration. The boating community needs to address establishing both minimum operator ages and mandatory boating education standards. "We need state watercraft registration legislation, which is uniform countrywide, that requires proof of ownership and proof of insurance to help us fight against fraud, boat theft, and a serious increase in frequency of uninsured boaters claims."

Know your product and have fun. That's the attitude taken by Andrew Anderson, executive vice president of Anderson Insurance Agency of Long Beach Island, New Jersey. This independent insurance agency writes more than 500 boat, yacht, and other policies and has its own in-house marine department. The Anderson Agency also places coverage on commercial fishing boats, marina and boat dealer risks and difficult-- to-place boats.

"Boat insurance is fun to write if you enjoy the outdoors and being on the water," says Anderson. "It gives you something pleasant to talk to the clients about. Boats insurance is usually purchased because the client sees value in the coverage. This often puts the clients in a better frame of mind when they are talking about their hobbies." Anderson stresses the importance of adding the watercraft policy to the client's umbrella policy if the client has one. "When a client purchases a large vessel, we advise them that they are now a `higher profile' member of the community; and it is possible that more will be demanded from them if they injure someone. This helps make the umbrella sale a little easier."

Anderson says that pleasure craft with good loss experience are seeing modest rate increases (in the area of 10% to 15%) while those with adverse loss experience are finding coverage difficult to impossible to secure. "Some underwriters will skillfully underwrite a tougher risk by excluding certain types of equipment from coverage or imposing other restrictive conditions on the policy as a way of making the risk acceptable. You need a real marine underwriter to do that. Many underwriters have expertise in a particular geographical region or with a particular type of boat. Like the rest of the insurance market today you need to start work on your difficult risk early."

Anderson says that underwriters want a complete picture the first time they look at the risk. Include MVRs for all operators and hardcopy loss runs for the difficult risk. Agents need to know what the insurers are willing to write. They also need to know the boating terminology if they are interested in pursuing boat business. "A lot can be learned by attending a boat show and talking with dealerships."